Living standards must fall by 15% to save the euro

THE euro has only a 20 per cent chance of survival, a leading think-tank warns today.

It is possible that the eurozone may not even survive next year according to the Centre for Economic and Business Research.

Chief executive Douglas McWilliams said the euro has an 80 per cent chance of failing in its present form in the next 10 years.

He said living standards would have to fall by about 15 per cent in the weaker economies and Government spending slashed if the single currency was to survive.

Mr McWilliams added: “There is no modern history of falling living standards in peacetime on the scale necessary to keep the euro in its current form.

“Indeed the scale of the cuts necessary was only just achieved in wartime. That is why I think there is at best a one-in-five chance the euro will survive as it is.”

The CEBR warned that the financial problems which have crippled Greece and Ireland will spread to other European countries mired in debt.

In a report released today, they say there could be another eurozone crisis in the spring – “if not before” – with Spain and Italy in the firing line.

Mr McWilliams argued that in order for the currency to survive as it is German growth needed to be sustained at more than three per cent for the next four years.

He added that living standards in Ireland, Greece, Spain, Portugal and Italy needed to be drastically cut and Government spending in those weaker countries would have to be reduced by 10 per cent of GDP.

He said there was an outside chance the euro could break up within the year, although this is unlikely because of the political will in France and Germany.

However he warned that even if the euro survived 2011 it will be the year the currency “weakens substantially” against the dollar.

The report adds weight to the Daily Express crusade for Britain to pull out of the EU altogether.

A deepening of the eurozone debt crisis would hit the UK hard because it exports heavily to the Continent. And taxpayers could be asked to contribute even more cash to struggling countries than the £7billion already pledged towards the bail-out of Ireland.

The report also offered a sombre outlook for Britain, warning that a double-dip recession is “well within the bounds of possibility for the UK” as austerity measures take their toll in 2011.

The stark report comes a day after credit ratings agency Moody’s branded the eurozone the “weakest link” in the global economy.

It said the most vulnerable countries using the euro will be forced to default on debts, despite austere spending cuts.

Moody’s experts said: “Europe remains the weak link, not just because of its sovereign debt crisis but also because even its fiscally stronger states – France, Germany and the UK – are tightening fiscal policy.

“With growth still low this could push the region’s more vulnerable economies into recession.”

Yesterday, the Institute for Public Policy Research also warned that problems within the eurozone would lead to a flood of EU migrants coming into Britain.